2022 (2) TMI 219 - AT - Income Tax

Bogus capital created - Addition on account of alleged beneficiary of capital creation of 43 benamidars - fictitious capital were never used which were only paper entries - AO made addition by taking view that no evidence is filed by the assessee that entire transaction is owned by M D Patel in his petition before ITSC - CIT-A deleted the addition - HELD THAT - CIT(A) in his finding has clearly held that there is no funds transfer from 43 persons to the assessee in the current year and in absence of fund for accommodation entry in the form of gifts loan and there is no reason to tax the fictitious capital created in case of other taxpayer in the hands of assessee. Thus in view of above factual and legal discussions and keeping in view of the decisions of Tribunal in various case of assessee s group we affirm the order of the ld CIT(A). One more reasons to affirm the order of ld CIT(A) that the AO in case of Alkaben Amrutram and Kanchanlala Rana 2016 (8) TMI 1563 - ITAT AHMEDABAD which were restore by Tribunal to the file of AO to verify the issue of capital crated in these cases and in pursuance of direction of the Tribunal the AO verified the issue of bogus capital formation and completed the assessment without making additions of bogus capital created and accepted the similar version of those assessee. Thus ground No.1 2 of the revenue is dismissed. Unexplained gifts - assessee has failed to prove with documentary evidence that the alleged gifts were received from the persons who were among the parties owned up by Shri M.D. Patel before the settlement commission - CIT-A deleted the addition - HELD THAT - CIT(A) while deleting the addition of gifts recorded that before AO the assessee filed affidavit about narrating the similar facts that the amount of Gift is also owned by MD Patel but he has not accepted it. The ld CIT(A) after considering the report of PCIT dated 04.01.2017 and other order passed by him in similar cases of group deleted the addition of gift . On perusal of various details as recorded in para-17 (supra we find that the either the AO or CIT(A) or ITSC has accepted the fact that entire transaction of capital creation is owned by MD Patel therefore we affirm the order of ld CIT(A). No contrary factor law is brought to our notice to take other view. In the result we do not find any merit in the ground No.3 of the appeal.

Summary

Issues Involved:
1. Deletion of addition on account of bogus capital creation.
2. Deletion of addition on account of unexplained gifts.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Capital Creation:

The Revenue challenged the deletion of ?2,02,07,402/- added due to alleged bogus capital created by the assessee. The facts reveal that a survey under section 133A was conducted, uncovering a scheme orchestrated by a Chartered Accountant, Pankaj Danawala, involving fictitious capital entries for 154 parties. The assessee's return for AY 2001-02 was reopened based on this survey, leading to additions in the assessment. The Ld. CIT(A) deleted the addition, noting that the head of the group, M D Patel, owned the entire fictitious capital and filed a petition before the Income Tax Settlement Commission (ITSC), which is pending before the Bombay High Court. The CIT(A) emphasized that there was no actual fund transfer from the 43 parties to the assessee in the current year, thus no benefit accrued to the assessee. The Tribunal upheld this view, referencing similar cases where fictitious capital creation was not taxed unless utilized, aligning with precedents like ACIT Vs Chandulal A. Shah and others. The Tribunal affirmed the CIT(A)'s decision, noting the absence of fund transfers and the lack of actual income earned from the bogus capital.

2. Deletion of Addition on Account of Unexplained Gifts:

The Revenue also contested the deletion of ?90,000/- added as unexplained gifts. The CIT(A) deleted this addition based on confirmations from M D Patel, who owned up the transactions, and the acceptance of similar claims in other group cases by the ITSC. The Tribunal noted that the AO had not accepted the affidavit filed by the assessee during the assessment. However, the CIT(A) relied on the report of the PCIT and previous orders in similar cases, concluding that the gifts were part of the transactions owned by M D Patel. The Tribunal affirmed the CIT(A)'s decision, recognizing the consistent acceptance of M D Patel's ownership of these transactions in various related cases, thus dismissing the Revenue's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions related to bogus capital creation and unexplained gifts, based on the consistent legal precedent and factual findings that there was no actual benefit or income accrued to the assessee from these entries. The judgment emphasizes the importance of substantiating claims with evidence and the principle that mere paper entries without actual utilization cannot be taxed.